1601 N. Tucson Blvd. Suite 9
Tucson, AZ 85716-3450
Phone: (800) 635-1196
Hotline: (800) 419-4777
Association of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto

Volume 52, No. 7 July 1996


``Senior citizens, and other Americans, deserve better than compulsory socialized medicine,'' stated AAPS Director Vernon Goltry, M.D.

When Medicare was signed into law on July 30, 1965, it came with guarantees that it was a voluntary program, at least for recipients (though not for taxpayers). Its voluntary nature is the excuse for Congress and the courts to refuse to alter the most oppressive and destructive features of the program.

A reminder that Medicare is voluntary is the basic theme of Medicare Patient Freedom Day, an annual commemoration begun by AAPS with the 30th anniversary of Medicare in 1995.

Patients are not required to have confidential medical information turned over to the government on HCFA form 1500 each and every time they seek a medical service. Patients are not required to accept money taken by force from taxpayers each time they seek medical treatment. Patients are not forbidden to seek care from physicians who decline to work under the constraints of the HCFA bureaucracy. Patients volunteer for these requirements and restrictions when they sign the form requesting Medicare payment (see p. 2).

In 1996, the significance of Medicare Patient Freedom Day to all Americans is increasingly clear. Medicare is the prototype for forcing all patients to relinquish their privacy and freedom of choice as a condition for receiving insurance coverage of any type. Actually, the freedom of all patients, even self-pay patients, would be abridged by certain provisions (``administrative simplification'' or forced computerization) in H.R. 3103 (Kassebaum-Kennedy), but enforcement would be difficult.

As the bankruptcy date for Medicare inexorably approaches (payments already exceeded tax revenues by $34 million in 1995 despite a projected surplus of $3.4 billion), pressures rise for ``reform.'' But so-called ``market-based'' reform- government favoritism that tends to push more patients into HMOs- really amounts to corporate socialism. In this model, the government delegates the rationing decisions (``tough choices'') to quasi-private bureaucracies.

Unlimited demand and a relentless increase in costs were the predictable results of Medicare and of tax incentives for third- party payment of most medical expenses. Attempts to contain costs lead to pressures to reduce quality. To respond to public discontent, while maintaining the privileges of the entrenched government and insurance bureaucrats, requires two things: scapegoats and a source of more revenue.

``Providers'' who have accepted the Medicare money are serving both as scapegoats and deep pockets in burgeoning ``anti- fraud'' efforts (which Kassebaum-Kennedy would expand from Medicare and Medicaid to all insurance contracts-see AAPS News, June 1996). For a preview of what will be happening everywhere if Kassebaum-Kennedy survives conference, we can look at enforcement actions in Medicare:

  • University of Pennsylvania doctors will pay $30 million ($10 million in alleged overcharges to Medicare and $20 million in penalties), the costs and risks of defense being deemed insupportable. The settlement agreement provided that: the amount due is not dischargeable by bankruptcy; the U.S. did not release any entity from possible criminal prosecution; the amount paid did not constitute ``punishment''; and the released entities waived any defense under the Double Jeopardy clause.

  • In Operation Restore Trust in Florida, doctors could lose their licenses long before exhausting criminal and civil appeals. ``It's scary that you have no due process,'' stated attorney Sandra Greenblatt (Medicare Compliance Alert 1/15/96).

  • Physicians paid settlements ranging from $250,000 to $2.5 million'' because of errors made by their billing company, IncomeRX, which was fined $25,000 before going out of business (Part B News). Inadequate supervision of billers can also land a doctor in jail (Medicare Compliance Alert 2/12/96).

  • Risky procedures that could trigger an audit: billing for more than 25% of visits at times when most offices are closed, such as weekends and holidays, or downcoding, which suggests you don't know what you're doing.

  • A key strategy is to make use of undercover agents and phone and video surveillance (BNA's Medicare Report 10/20/95).

Although such actions are targeted at ``providers,'' they affect patients in several ways: patient privacy is violated by investigators; physicians may be increasingly unwilling to provide services; costs are increased; and physician's efforts must be diverted into compliance rather than medical activities. Note that the (uninsured and uninsurable) cost of defending against prosecutors and paying recoupments and penalties vastly exceeds most malpractice awards. An inadvertent technical violation of the ``integrity'' of a plan may carry a far higher pricetag than a negligent injury of a patient!

All of these risks are assumed by patients and physicians who accept money from the Medicare or Medicaid program (or under Kassebaum-Kennedy, any insurance program). These Draconian controls are (supposedly) accepted voluntarily. What would be the nature of the controls if the program were compulsory? Winston Churchill foresaw the consequences of socialism, although he was too tired to fight it:

``A socialist policy is abhorrent in the British ideas of freedom...[T]here can be no doubt that socialism is inseparably interwoven with totalitarianism and the abject worship of the state. It is not alone that property, in all its forms, is struck at, but that liberty, in all its forms, is challenged by the fundamental conception of socialism.''

Complete bureaucratic control over life and death in America can only be averted by preserving private medicine. On Medicare Patient Freedom Day, 1996, AAPS will once again proclaim their right to private contract.

Private Contracting Update, and

Echoes from Medicare Patient Freedom Day, 1995

Illegal but Not Punishable, or Punishable but Not Illegal? The Medicare Part B Hotline for May 1996 [copy available on request] states that ``the Health Care Financing Administration does not seek to limit or interfere in the right of a beneficiary to obtain medical care from the physician of his or her choice.'' The rest of the article details exactly how HCFA does interfere with the practice of medicine, in violation of Section 1395 of Title 42 of US Public Health and Welfare Law.

As the article points out, ``a claim cannot be submitted to Medicare unless the Part B beneficiary or someone on his or her behalf has signed the claim for Medicare payment.... In this circumstance, the Part B beneficiary is preventing the physician from complying with the mandatory claims submission requirements....'' However, the article also states that even the ``suggestion'' by a doctor that the patient might wish to exercise the right to private contract and the right to privacy by not turning over confidential medical information to bungling, irresponsible government bureaucrats constitutes ``coercion.'' Clearly, it is HCFA that is guilty of coercion and of violating physicians' and patients' rights to free speech.

The Part B article further asserts that ``agreements with Part B beneficiaries purportedly waiving these Federal requirements have no legal force or effect and do not protect a physician from Federal penalties for failure to comply with the law if a Part B beneficiary chooses not to abide by such an agreement.'' If the government has the authority simply to declare contracts invalid, then a contract is not a contract, and the government will have abrogated the Medicare patient's right to make private contracts. There is no precedent in the courts to take the position that all contracts of a specific type (e.g. to waive Part B benefits) are coercive by definition.

Another question is whether the government has the right to dictate the terms of private contracts. But if the patient does not authorize release of information, the government is not even authorized to discover the terms of the contract.

HCFA asserts that ``in our experience, Part B beneficiaries virtually always want Medicare to pay for covered services.'' How can HCFA speak for what beneficiaries ``want''? Have they forgotten the prominent case (Stewart v. Sullivan) in which patients and a physician took them to court to assert their right to private contracts? HCFA has put no prohibition of private contracting in writing, and Congress has passed no law to forbid it. [Neither has the constitutional authority to do so -- Ed.]

I have sent letters on the issues of free speech and private contracting to Mr. Thomas Ault, HCFA Bureau of Policy Development, on July 7, Sept. 19, and Oct. 24, 1995, and have yet to receive a reply, even though this policy information was requested under the Freedom of Information Act.

[AAPS also received no reply to our inquiries about whether HCFA intended to take enforcement action on Medicare Patient Freedom Day, 1995 -- Ed.]

Lawrence R. Huntoon, M.D., Ph.D.

No ``Vigorous Pursuit'' for $1. On August 1, 1995, Anthony A. Cassens, M.D., confessed to HCFA that he had made a house-call for a Medicare-eligible patient, Mary Sue ****, after agreeing beforehand that the charge would be $1.00 cash and that neither would submit a billing claim to HCFA. He asked whether he had violated any laws and whether HCFA would impose sanctions for accepting payment not in accordance with HCFA reimbursement schedules.

On Nov. 8, 1995, Dr. Cassens finally received a reply from Thomas Ault, who noted that the charge of $1 did not violate Medicare's limiting charge for house calls. He also noted that failure to submit a claim on the standard form within one year of providing the service did violate Section 1848(g)(4), and civil monetary penalties could be imposed.

Mr. Ault continued: ``While we take our obligation to enforce this statutory requirement very seriously, it is not HCFA's policy to seek sanctions under section 1848(g)(4) where, as here, the beneficiary was unlikely to have been harmed since she was charged only $1. Pursuing sanctions in such a case would be an inappropriate use of the Medicare program's scarce administrative resources. However, be assured that we will vigorously pursue sanctions where failure to submit a claim would appear either to jeopardize a beneficiary's use of the Medicare benefit or to circumvent an important beneficiary protection, whether it be the Medicare limiting charge or another statutory requirement with which a physician disagrees.''

A Form for Non-Medicare Physicians


As a patient of Dr. _____, I confirm my full knowledge that he does not participate in, nor is he a provider for, Medicare Part B. Accordingly, I hereby consent and agree that he will not furnish any documentation whatsoever for recognition by Medicare as a receipt for medical services rendered.

For valid consideration, I expressly promise and warrant that neither myself nor my heirs, executors, administrators, successors, beneficiaries, or assigns, will ever seek reimburse- ment, directly or indirectly, from any Medicare carrier for any medical services provided by Dr. ____.

I consent and agree that Dr. ____ is justified in relying upon this Medicare Acknowledgement Form in rendering services on my behalf. I promise to reimburse him for any reasonable attorneys' fees and costs which may result from my breach of any aspect of this form.

Except as set forth herein, I am neither relying on any supplemental representations nor have any supplemental agreements with Dr. ____ regarding Medicare reimbursement.

Patient __________________________
Signature ________________________ Date ______________
Witness___________________________ Date ______________

Notes: (1) It is preferable to confirm ``knowledge'' rather than ``being informed.'' One can be informed without believing the information. (2) It is preferable to ``promise and warrant'' when the other party to the agreement (the physician) is not co- signing the form. (3) It is advisable to bind heirs, executors, etc., since they often are the ones who actually file the claim. (4) The third paragraph enhances the enforceability of the form. (5) The fourth paragraph protects the physician against spurious charges by the patient or the government that there was a side deal or oral modification to the Form. (6) The term ``Acknowledgement'' is used instead of ``Disclaimer'' to improve accuracy and avoid negative connotations.

Andrew Schlafly, Esq.

Correspondence from the LLCS

Does Opposing Managed Care Violate Antitrust Law?

First Health West, a managed care group in Oklahoma, recently threatened to sue physicians who had refused to deal with it, purportedly ``acting together to block or otherwise frustrate the growth of alternative delivery systems.''

Most antitrust actions are brought by physicians complaining of the anti-competitive effects of exclusive contracts and managed care. In this instance, a managed care group has attempted to invoke the antitrust laws in order to intimidate private physicians.

First Health West has a reputation among rural physicians for monopolizing the market, engaging in predatory pricing, and otherwise intimidating physicians who maintain independent private practices. In October 1995, a grand jury in Lawton returned twelve sealed indictments against individuals connected with the activities of First Health West. The grand jury reported that the primary goal for establishing a managed healthcare program was to monopolize medical practice rather than to provide good care to residents of Comanche County (Modern Healthcare, 10/23/95, p.24). The grand jury expressly recommended that the hospital administration be prohibited from threatening the practices of independent physicians.

First Health West has not abandoned its efforts, however. To the contrary, it applied for and obtained the right to participate in the final application stage for the HCFA Medicare Choices demonstration project. First Health West apparently needed to have signed provider contracts by March 8, 1996, in order to remain a viable applicant. During the week of March 4, 1996, First Health West conducted a series of meetings with physicians and administrators in order to induce participation in its program. In light of the foregoing indictments, it is likely that the hostility to First Health West was already at a fever pitch; nevertheless, several physicians and administrators did attend such meetings in good faith.

On March 5, 1996, a meeting was held at Elkview General Hospital, during which physicians and administrators discussed the proposals of First Health West. The nature and content of such discussions are not generally known. What is known is that none of the attendees subsequently elected to contract with First Health West, nor did another physician who had communicated such intentions prior to the meeting.

First Health West immediately threatened to sue the attendees at the meeting. Counsel drafted and circulated a complaint, but it is doubtful that such complaint will ever be seriously pursued. The claim- though possibly effective for the purpose of intimidation-is without merit.

First Health West claims that the physicians and administrators breached Section One of the Sherman Act, which prohibits ``[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce,'' by entering into an improper agreement to restrain trade by deciding not to deal with First Health West. Such agreement, according to the allegations of First Health West, has (i) caused higher prices for physician services, (ii) deprived managed care entities of the benefits of full and fair competition, (iii) hindered development of innovative health care delivery systems, and (iv) deprived consumers of full competition in health care.

First Health West wisely avoided alleging a violation of Section Two of the Sherman Act, and thereby obviated the need to demonstrate monopoly power by the proposed defendants. (This would have been impossible here). Instead, First Health West merely alleges an agreement to restrain trade, which is unlawful regardless of market power.

There are, fortunately, several fatal defects to this claim of First Health West. The most glaring defect is that First Health West has no direct evidence that any agreement was actually reached among the proposed defendants with respect to excluding First Health West. It may be that the meeting attendees merely ``discuss[ed] their individual choices whether or not to contract with First Health West with one another.'' Informational exchanges alone, without an agreement or other concerted act, do not typically constitute a violation of Section One of the Act. (See Wilcox v. First Interstate Bank of Oregon, N.A., 815 F.2d 522, 525-27 (9th Cir. 1987).) Unless First Health West can uncover a written agreement or taped conversation, it will unlikely be able to prove that a Section One violation actually occurred here. (See Gulf States Land & Dev., Inc. v. Premier Bank N.A., 956 F.2d 502 (5th Cir. 1992).)

Even if there were an actual agreement to refuse to deal with First Health West, such an agreement may have been ``reasonable'' and therefore proper under the antitrust laws. Although Section One jurisprudence is murky on this point, the consensus is that reasonable agreements to refuse to deal with a supplier do not constitute violations of Section One. Such agreements, which can even entail outright boycotts, are permissible under the antitrust laws if there is ``justification derived from the policy of another statute or otherwise.'' Silver v. New York Stock Exchange, 373 U.S. 341, 348-49 (1963). In light of the track record of First Health West-which apparently includes numerous indictments-an express boycott of the organization might even be lawful.

Finally, it is worth observing that First Health West does not qualify as a traditional victim of antitrust violations. In fact, the Department of Justice (DOJ) recently condoned collective behavior analogous to the allegedly improper acts of the Oklahoma physicians and administrators. Anne K. Bingaman, head of the Antitrust Division, stated in a letter dated April 24th that a group of New Jersey hospice care providers could form a network to act as an intermediary for the negotiation of managed care contracts between its members and third-party payers. ``According to DOJ, the network should provide efficiency benefits by permitting third party payers to contract with a group of hospice care providers through a single representative. The network may also result in efficiency benefits from utilization review and quality assurance monitoring'' (BNA Health Care Daily 5/1/96). DOJ did base its letter on the geographic independence of the network members. DOJ advised that, in the event the members ever became competitors within the same geographic market, concerted decisions about competitively sensitive matters must then relate to significant economic integration among the members. Simply put, actual competitors should be careful when they engage in concerted action against suppliers.

It is not known how effective the intimidation by First Health West has been in Oklahoma. The legal costs associated with drafting and sending a threatening letter and complaint are relatively small. The impact of such a threat is often substantial, and more than justifies the cost. Clearly, the stakes in the battle between managed care and independent private practice continue to increase, and bitter disputes like the one in Oklahoma will likely emerge in other jurisdictions as well.

Andrew Schlafly, Esq., New York, NY

Members' Page

Is This Fraud? 1. Although the Medicare Limiting Charge Law now applies to all Medicare patients, whether Medicare is primary or secondary, the Blues and other insurers continue to charge the same ``private-pay premiums'' while the Law cuts their actual expenditures in half.

2. The March issue of News of New York reports an ongoing process for HCFA to remove erroneous edits from their coding manual. About 5,700 erroneous edits were dropped recently- that's 7% of the 87,000 recently unleashed upon doctors. If they keep up this rate on their quarterly updates, about 28% of the edits put in place in a year will be erroneous. For participating physicians, HCFA automatically corrects the claims, but for nonparticipants, HCFA can legally trash the doctor's reputation as they tell patients they are eligible for an immediate refund. Nonparticipants must also incur the expense of writing back to HCFA in each instance within 15 days or else become officially guilty by default.

3. Blue Forgers (aka Blue Bunglers and Blue Burglars) can argue that they don't actually forge doctors' signatures, they just alter the documents that the doctors signed so that it looks like they signed something else. The ``penalty'' when they are caught red-handed is a ``time-out'' period from enrolling new Medicare beneficiaries, rather like sending a bank robber to the penalty box for 5 or 10 minutes.
Lawrence R. Huntoon, M.D., Ph.D.


Plato on Government Regulation of Medicine. Amid the ruins on Palatine Hill in Rome, I read some of Eric Voegelin's commentary on Plato's Statesman and Laws: Let us suppose that citizens, who had been hurt or charged too much by their physicians, resolve on a set of regulations which will determine the action of physicians to the last detail. Suppose that each year the physicians have to face a people's court of review, where anyone can charge them with violating a rule. If convicted, they will be sentenced to a fine or jail....The Younger Socrates interjects contemptuously that anyone who would serve under such conditions deserves any penalty.

But the Athenian Stranger continues. He further supposes an enactment that forbids anyone to inquire into medicine. Anyone who nevertheless indulges in such an inquiry and makes a new discovery that he imparts to the young shall be punished with utmost rigor, ``for nobody should be wiser than the law.'' Plato, in a rare instance of speaking directly, answers the question about the effects of extending this procedure to all arts and sciences: ``The arts would utterly perish and could never be recovered; and life which is a burden even now would then no longer be worth living.''
Robert Cihak, M.D., Aberdeen, WA


On Kassebaum-Kennedy. The fact that the measure passed the Senate on a 100-to-0 vote suggests to me that no one read the bill, or no senator has any real principles.
A. James Sniderman, M.D., Dayton, OH

  New Jersey has experienced Kassebaum-Kennedy for four years now with our own Insurance Reform Act of 1992. It seemed great at first with community rating and guaranteed issue, but rates are now rising so fast that the people are finding it unaffordable again; it has actually made things worse.
Alieta Eck, M.D., Piscataway, NJ

  The AMA has unfortunately supported this bill. Ultimately, if something is not done to stop the criminalization of medicine, we will all have to voluntarily resign.
Richard A. Neubauer, M.D., Lauderdale-by-the Sea, FL

Even Before Kassebaum-Kennedy: We received a letter from the Medicare Benefits Integrity Dept alleging that we used the code 83721 improperly for every LDL we performed from 10/93 through 1/96 and demanding that we go through laboratory work sheets now in storage for the 8400 tests listed, within 30 days. In fact, there was no bench-top test for LDL until late 1993. We have the CPT code books; they didn't tell us it was forbidden to calculate LDL until mid-1995. We switched as soon as we found out. Now they are waving a newsletter in which the information was buried among hundreds of items, saying we ``should have known.'' They are inconsistent, sometimes using AMA CPT codes and sometimes not, and they won't give you a straight answer, but now they are demanding to recoup about $80,000. We left Canada to get away from this nonsense, although in Canada they don't have jail time or asset forfeiture, just fines and deprivation of your license for a time. We knew it was over for medicine in the US in 1984, when the government fixed prices and there was no physician uprising. We're getting out of medicine before they take us away in cattle cars.
Richard D. Fisher, M.D., Sun City, AZ


Echoes. Fear of revolution led Bismarck to make German workers dependent on the state; Lenin had similar plan. Both used ``health care'' for maintaining the totalitarian state.
Teddy Darocha, M.D., Canadian, TX


AAPS Calendar

July 30. 2nd annual Medicare Patient Freedom Day.
Sept. 26-28. IATROS meeting, Troon, Scotland: call Dr. Tim J. Winning, Berato, Barrs Brae, Kilmacolm PA 13 4DE, Renfrewshire, Scotland, phone: 01505 874473.
Oct 10-12. 53rd annual meeting, La Jolla, CA.
Sept 17-20, 1997. 54th annual meeting, Chicago, IL.

Legislative Alert

The Price of Pulling a Fast One

Dr. Jane Orient's May 30 Wall Street Journal piece on the Kassebaum-Kennedy fraud-and-abuse provisions has had the phones ringing off the hook on Capitol Hill. That's the word from senior congressional staff. While conferees have not yet been appointed, House and Senate staff have been having serious communications on the outlines of a compromise. Given past experiences with Congressional staff on health care policy, whether Republican or Democrat, this is always a risky enterprise. They have an immense capacity to create a politically embarrassing mess. Of course, congressional staff don't have to take the heat at election time.

This is supposed to be a conservative House of Representa- tives. No wonder conservative Members of Congress and their staff, the alleged majority, are both upset and embarrassed that they didn't catch the Clinton-style fines and penalties imposed on doctors, especially since key provisions of the punitive legislation were lifted literally word for word out of the detested Clinton Health Plan. No wonder the language is strongly backed by the Clinton Administration's Department of Justice. Fining doctors $10,000 for coding errors, when there is ``no specific intent'' to defraud, is nuts on the face of it.

While the General Accounting Office (GAO) has done extensive work detailing the extent of fraud and abuse in the federal Medicare program, relatively little has been done to study fraud and abuse in the private sector or even the Federal Employee Health Benefits Program (FEHBP). (Oddly, the FEHBP is exempt from certain fraud-and-abuse sanctions in the Kassebaum-Kennedy bill- kickback provisions-that apply to other federal health care programs. Whatever happened to the famous ``Contract With America'' principle that whatever applies to everybody else also applies to Congress?) Nor did Ways and Means, House Judiciary, or the Energy and Commerce Committee hold extensive hearings on the subject.

So, how did congressional conservatives, who campaigned for a sharp reversal of direction in federal policy and told voters they would have nothing to do with the hated Clinton health plan, ever vote for such a thing? The easy answer is that they simply didn't read the bill. Pilot error. Part of the reason is, of course, the primary focus on the legislation's major policy initiatives, namely medical savings accounts, business pooling arrangements for insurance, and the guaranteed portability provisions of the bill. Part of it is the fact that the onerous provisions dealt with fraud and abuse, and who could vote against efforts to stop fraud and abuse, especially in the Medicare program, where it has reached disgraceful levels.

But legislative provisions don't just happen; they have authors and sponsors. The word on Capitol Hill is that the fraud and abuse language was generated by Congressman Christopher Shays of Connecticut, a member of the House Budget and the Government Reform and Oversight Committees, and Congressman Steve Schiff of New Mexico, who serves on the House Judiciary Committee.

Expect some action in conference. It is likely that this language will be dropped or substantially modified, fraud more carefully and competently targeted, and more competent legislative work accomplished before this thing is over. As of this writing, conferees on the Kennedy-Kassebaum legislation still have not been appointed.

The Future of MSAs

The most intense discussions center on the House's Medical Savings Account (MSA) provisions. According to the Joint Tax Committee, MSAs will be most popular with folks in the middle income range ($40,000 to $75,000 per year). So much for the class warfare argument.

In a related development, the American Academy of Actuaries, a fun bunch of number crunchers, says that MSAs are likely to be attractive to small employers and young people. Assuming ``wise design,'' about two thirds of current workers would be better off financially with an MSA, while one third would have greater out of pocket expenditures. The Academy does not expect MSAs to reduce the number of the uninsured. It believes that MSAs will move slowly at first, then pick up steam after Americans get to understand them.

The arguments against MSAs contradict each other. Some dismiss them as being of no account in stabilizing medical costs or increasing market efficiency because so few people will choose them. If that is the case, how can MSAs then threaten the stability of the health insurance market? If the problem is adverse selection, then the argument against allowing a choice of MSAs would also apply to allowing a young family a choice of a managed-care plan. Indeed, managed-care interests were recently fending off this argument from traditional insurers.

In fact, a May 1996 report by the National Academy on Aging made the very same point with reference to the introduction of options in Medicare: ``Although all Medicare recipients would be encouraged to join managed-care programs, those in good health are more likely to accept the financial incentives to do so. The same is true for medical savings accounts. Those in poor health are more likely to find the certainties of traditional fee-for- service care-the devil they know-more attractive, leaving that pool disproportionately populated by those with the highest health care costs.''

OK, then. So we should forbid folks from choosing managed-care plans for the same reason we should forbid them from choosing MSAs. The only way to prevent adverse selection is to prevent any choice at all. Yet employers seem to have done a good job in managing and pricing risk with managed care and traditional insurance. Why couldn't they do an equally good job with MSAs too?

Then there is always the dreadful possibility that MSAs are actually a good idea, and lots of folks will open them and spend their own money on medical services. Congress and the President are then preventing folks from spending their own money and protecting the vast spending power of insurance companies. How will the soundbite go: Be True to Your Blues? You Should Care About Kaiser? That's got a ring to it, right?

The latest mumbling coming out of the White House is that well, maybe, yes, we could have MSAs if they were set up as a demonstration program. Another variation is that we should set up MSAs but fix some time period on enrollment to avoid adverse selection. Should not we do the same thing to managed care plans or other plans in the FEHBP? Members of Congress and federal workers and retirees get to switch once a year. Maybe it's time we put a stop to that, too?

Big Fights over Business Pooling

House and Senate conferees will also wade into another big special interest fight-insurance laws governing business pooling. The House bill allows voluntary associations and multiple employer welfare associations to get out from under state mandated benefits by extending the 1974 ERISA rules to small business pooling arrangements. The Senate bill sets up the managed-competition style health plan purchasing cooperatives (HPPCs). Needless to say, conservatives are skeptical of the Senate arrangements because they fear the establishment of large, geographically based cartels. They prefer to give small businesses the same regulatory and legal breaks that big self- insured businesses get today and would also open the insurance market to more association plans sponsored by religious and professional organizations.

But there's a catch. Setting up new rules for small business and extending ERISA-like protections would aggravate the unlevel playing field in state health insurance markets. The commercial insurers would have to compete under the handicap of state premium taxes and mandated benefits. It is one thing to have a distorted insurance market based on the tax treatment of medical insurance and leave it that way because of dumb inertia. It is quite another to deliberately distort the market by setting up two sets of rules for two sets of insurers. It is not what Adam Smith would call a free market.

The lobbyists and members of the National Federation of Independent Business (NFIB), which played havoc with the Clinton Plan in the last go-around, are fighting like crazed demons to secure passage of the House language. They argue that state- mandated benefits are driving up the costs of medical insurance well into the double digits, and that the treatment of small business by Congress, as opposed to the treatment of large self- insured companies, is unfair. They have a point.

Commercial insurers, led by the Blue Cross and Blue Shield Association, are fighting to get rid of the House language. So are the state bureaucrats. The National Conference of State Legislatures, the National Governors Association, and the National Association of Insurance Commissioners are saying that the House bill reverses progress in state health insurance reform (like Washington State, or Tennessee, or Minnesota?), and that it is substituting inadequate federal solvency rules and consumer protections for those coming from state regulation of this industry. Naturally, state officials like the Senate bill better, because it would ``complement'' the state's regulatory authority over insurance rather than replace it.

Some Capitol Hill observers argue that when it comes to markets, maybe the Blues just don't like competition. The obvious solution is to have a net deregulation of the market for everybody and level the playing field for all competitors.

To their credit, the House sponsors of the insurance pooling provisions, Congressman Harris Fawell of Virginia and Congressman Dennis Hastert of Illinois, proposed just such a solution. They have understood the problems and set out to level the playing field by preempting all state mandated benefits and even preempting all state premium taxes. Congressional conferees are going to have to revisit this issue and make some serious decisions. The struggle over this pooling arrangement issue, while technical, is significant: Is health insurance to be a state or federal concern? Congress is going to have to address this basic question.

Big Scary Medicare Numbers

By the time this goes to press, the Medicare Trustees will have released their annual report. It is fashionably late, and you can expect that the Clinton Administration's wordsmiths have gone over every syllable to make sure that the report doesn't become another embarrassment to the Administration. However, the National Academy on Aging has just released another report, summarizing the findings of top scholars on Medicare, Social Security, and the other entitlement programs. The numbers are scary. The Academy notes that the problems of the elderly are born of our success in medicine and increased lifespan. So we are celebrating, even as we debate the topic, the achievements of the American experiment.

But the fiscal crisis is just around the corner: ``The combination of the inevitable population aging and high medical care costs dictate that federal retirement and medical insurance programs receive prompt legislative attention, and the sooner the better.'' The Academy notes that federal spending has shifted from the military to health and retirement. While defense spending equaled 14.3% of the GDP in 1953, at the top of the Cold War, defense now takes only 3.9%. On the other hand, citing the work of Gene Stuerele of the Urban Institute, the Academy notes that health and retirement have jumped from 10% of all federal spending in 1950 to 30% in 1970 and accounts for more than 50% of all federal spending today. Interest on the federal debt plus health and retirement spending make up two thirds of all federal spending. Within the Medicare system, Medicare Part B expenditures have grown by over 50% in the past five years, or about 20% faster than the general economy.

According to the Academy, the oncoming Social Security problem is manageable, and the strategies to deal with it can be hammered out with time to spare. Medicare is different: ``Medicare's problems are...intrinsically intertwined with a much larger issue-medical costs in America, which are rising at about the same rate as per capita Medicare costs. This relative price inflation for Medicare will soon be compounded by the demographic shifts....There is no consensus on how to handle the broader cost problem...''

Politically, Congress has been taking a beating on Medicare reform, and it is no wonder. The survey data indicates that huge majorities of Americans are willing to support ``cuts'' in Medicare to save the system from bankruptcy. But once the debate is framed in terms of the balanced budget, a ``modest'' majority will oppose such cuts. Moreover, Americans, by overwhelming majorities, will oppose Medicare ``cuts'' to pay for a tax cut. Liberals have been effective in setting the terms of the 1995 and, thus far, 1996 debate on Medicare. Conservatives in Congress are going to have to figure out how they sell Medicare reform, especially at a time when it is desperately needed, i.e. sooner rather than later.

The problem is that all of this is taking place prior to the onrush of the great graying bulge in America's population pipeline: The millions of Mouseketeers, the Baby Boomers. In 1990, 21% of the population was age 55 years and older. By 2010, when the Boomers are set to retire, it will jump to 25%. By 2020, it will reach 30%. Within the aging population, the oldest folks are growing the fastest. Americans 85 years and older are the fastest growing cohort in the American population; they are expected to increase by more than 400% between 1996 and 2050, from 4 million to 19 million. The current system, ancient and bureaucratic, creaking under silly rules and centralized planning, cannot handle this workload, and just about everybody realizes it.

Read the 1996 Medicare Trustees Report, after it hits the streets, closely. There is only so much that even the Clinton Administration can do with the basic math.

Return to the home page

click here